tiff)
Mosman & Co Pty Ltd (Defendant)
Representation: Counsel:
D Allen (Plaintiff)
D Tang (Defendant)
[2]
Solicitors:
Tomaras Lawyers (Plaintiff)
Brander Smith McKnight (Defendant)
File Number(s): 2018/92942
Publication restriction: Nil
Decision under appeal Court or tribunal: Local Court
Jurisdiction: General Division
Date of Decision: 23 February 2018
Before: Walsh LCM
File Number(s): 2017/184248
[3]
Judgment
HER HONOUR: This is an appeal from the Local Court concerning contractual dealings between the parties.
By amended summons filed 15 June 2018, the plaintiff seeks orders, firstly, that the part of the decision which directed judgment for the defendant in the amount of $61,000, together with interest and costs on an ordinary basis against the plaintiff, be set aside; and secondly, that the order be substituted for an order for the plaintiff against the defendant.
On 12 June 2018, the defendant filed a notice of contention. The defendant contends that the decision of the court below should be affirmed on grounds other than those relied on by the court below, but does not seek a discharge or variation of any part of the decision.
The defendant has filed a notice of contention raises two issues. It will only be necessary to deal with these issues in the notice of contention if the appeal is successful.
The plaintiff in these proceedings is Dunkirk Property Development Pty Ltd ("Dunkirk"), who was the first defendant in the Local Court proceedings. The defendant is Mosman & Co Pty Ltd ("Mosman"), who was the plaintiff in the Local Court proceedings. For convenience, I shall refer to the parties by name. In the Local Court proceedings there were two other named parties, Bill Koutrodimos (a director of Mosman) and Lambros Hilellis (a director of Dunkirk). However, judgment was given against Bill Koutrodimos in favour of Dunkirk, and proceedings against Lambros Hilellis were dismissed. Neither of these parties is involved in this appeal.
Both Dunkirk and Mosman relied upon a joint court book filed 19 September 2018.
On 23 February 2018, his Honour Magistrate Walsh handed down his judgment. He entered judgment in favour of Mosman in the sum of $61,000.
[4]
The appeal generally
Section 39(1) of the Local Court Act 2007 (NSW) provides that a party who is dissatisfied with a judgment or order of the Local Court may appeal to the Supreme Court, but only on a question of law.
Section 40(1) of the Local Court Act provides that a party to proceedings before the Court sitting in its General Division, who is dissatisfied with a judgment or order of the Court on a ground that involves a question of mixed law and fact, may appeal to the Supreme Court, but only by leave of the Supreme Court.
Section 41 of the Local Court Act provides that this Court may determine an appeal either (a) by varying the terms of the judgment or order, or (b) by setting aside the judgment or order, or (c) by setting aside the judgment or order and remitting the matter to the Local Court for determination in accordance with the Supreme Court's directions, or (d) by dismissing the appeal.
[5]
Background
The following facts are common ground between the parties.
In 2015, Dunkirk was a property developer and was the vendor of properties situated in Hurlstone Park. Mosman was a real estate agency.
On 21 August 2015, Dunkirk and Mosman entered into a sales inspection report and open selling agency agreement ("the agency agreement"). Mosman undertook to sell Durkirk's properties at XXX, XXX and XXX Canterbury Road, Hurlstone Park ("the properties").
Clause 7 of the agency agreement relevantly reads:
"7. Agents commission and reimbursement
7.1 The vendor acknowledges the Agent is entitled to commission if
during the agency period ("item A") the purchaser is effectively introduced by the Agent, regardless of whether the sale occurs after the termination of this Agreement.
7.2 Should a binding contract be entered into but not completed due to:
(a) any default by the Vendor; or
(b) the Vendor, as Seller, releasing the Purchaser (by mutual agreement or otherwise) from the Purchaser's contractual obligations; or
(c) the deposit forfeited to the Seller due to the Purchaser's
non-performance
the Vendor agrees the commission is payable to the Agent forthwith. Provided however, where cl 7.2(c) applies, Commission will remain due but moneys payable shall (subject to the Seller's rights to claim damages for breach of contract) be limited to the receipted deposit moneys.
WARNING: The term immediately above provides that a commission is payable under this agreement even if the sale of the property is not completed."
In particular, clause 7.2 of the agency agreement provides that should a binding contract be entered into, Dunkirk agreed to pay a commission to Mosman forthwith. The commission was 1.3% of the sale price ("the commission").
On 15 September 2015, Mosman (as agent for Dunkirk) and Mercurius Investment Pty Ltd ("Mercurius") signed the contract of sale. The purchase price of the property was $7,000,000. The agreed deposit was $350,000 (being 5% of the purchase price), and the completion date was nine months after the date of the contract. (Aff, Koutrodimos 15 November 2017, [19]). Mosman's entitlement to commission under the agreement is said to arise because Mosman introduced Mercurius to the property and the agreement was exchanged between Mosman and Mercurius.
On 21 September 2015, Bill Koutrodimos (a director of Mosman) notified Dunkirk that the deposit of $350,000 had been received in Mosman's trust account. Dunkirk then provided their lawyers with an irrevocable authority to pay commission to Mosman signed by Mr Hilellis, the sole director of Dunkirk. (Aff, Koutrodimos 15 November 2017, [21]-[22]; Annexures BK-6 and BK-7). The irrevocable authority of 21 September 2015 reads:
"IRREVOCABLE AUTHORITY
To: Tomaras Lawyers
Suite 5, level 12, 53 Martin Place, Sydney, NSW, 2000.
1. I, Lambros Helios, sole director/secretary of Dunkirk Property Development Pty Ltd (Dunkirk) hereby irrevocably authorise and direct Tomaras Lawyers to pay $91.000 to Mosman & Co Pty Ltd trading as LJ Hooker Sylvania from any moneys received on behalf of Dunkirk from the settlement of sale of XXX Canterbury Road, Hurlstone Park, before accounting to me or at my direction for any surplus.
2. I acknowledge that I am unable to revoke this authority and it is on this basis that Mosman & Co Pty Ltd trading as LJ Hooker Sylvania has agreed that payment to it abides the event of settlement of the sale.
Dated: 21/9/15"
On 6 April 2016, Mercurius authorised Mosman to make an early release of the $350,000 deposit to Dunkirk. The following day on 7 April 2016, a representative of Dunkirk collected the deposit. In an email to Dunkirk's solicitor acknowledging the early release of the deposit, Bill Koutrodimas asked "Could you kindly advise our office when settlement is to take place and take into consideration our selling fees $91,000 due and payable on settlement day." (Aff, Koutrodimos 15 November 2017, Annexure BK-8).
On 23 June 2016, Dunkirk and Mosman entered into a deed of variation of contract for sale of land in respect of the property which extended the date of completion to 15 December 2016. However, the sale of the properties did not complete on 15 December 2016.
On 28 March 2017, Dunkirk and Mercurius entered into a deed of mutual rescission of contract. Its effect was to rescind the contract for the sale of the properties. Mosman alleges that it was this action by Dunkirk that crystallised its obligation to pay $91,000 pursuant to cl 7.2(b) of the agreement. An unexecuted copy of the deed of mutual rescission of contract is part of Annexure BK-13 of Ex 1. Recital B(ii) of the deed states:
"Upon the signing of this Deed the Purchaser is to pay to the Vendor, or as directed by the Vendor, by way of bank cheque the sum of $50,000".
Under the heading "Money paid" on page 3 of the deed, it states:
"(a) Any and all moneys paid by the Purchaser to the Vendor including the deposit in the sum of $350,000 together with all interest, in respect of the property shall be retained by the Vendor in full."
On 29 March 2017, Dunkirk and Mosman entered into a further Sales Inspection Property and Open Selling Agency Agreement in respect of the property.
On 30 March 2017, Mosman and Dunkirk entered into a fee agreement. It relevantly reads:
"The parties have agreed that in respect of the fees claimed under the agency agreement entered into on 21 August 2015, for the sale of the property known as XXX-XXX Canterbury Road, Hurlstone Park, to Mercurius Investments Pty Ltd claimed by Mosman & Co Pty Ltd the following will apply:
Mosman & Co Pty Ltd will receive $30,000 as commission including GST for the abovementioned sale and will provide tax invoice to Dunkirk Property Development Pty Ltd.
Mosman & Co Pty Ltd will accept the sum of $30,000 as full and final payment and will forego any claim to unpaid commission under the agency agreement entered into on 21 August 2015.
The amount shall be paid as follows:
Upon parties signing this agreement Dunkirk Property Development Pty Ltd shall pay the amount of $10,000 to Mosman & Co Pty Ltd nominated bank account.
Dunkirk Property Development Pty Ltd shall make a further payment of $20,000 by 28/04/2017."
On 30 March 2017, Dunkirk did pay $10,000 as promised. By 28 April 2017, Dunkirk had not pay $20,000 as promised.
On 1 May 2017, Mosman's representative inquired of Dunkirk's representative if the money $20,000 had been deposited on the previous Friday, 28 April 2017. On 11 May 2017, Mosman's representative inquired of Dunkirk's representative as to why the $20,000 had not been paid.
On 15 May 2017, Dunkirk's representative received a response from Mosman's representative. It relevantly reads:
"With the balance of your comm of 20k we will deposit 4 payments of 5k over 4 months. The first payment will be made into your account tomorrow, followed by another 3 monthly payments.
I realise this is not ideal but at this stage our cashflow cannot afford to pay any lump sums to anyone."
On 16 May 2017, the deposit of $5,000 was not paid. On 17 May 2017, Dunkirk transferred $1,000 to Mosman's bank account. On 23 May 2017, Mosman's solicitors sent a letter of demand seeking $80,000, being the balance of $91,000 pursuant to the original agreement, less payment of the $11,000 as made.
Between 24 May 2017 and 24 July 2017, after the statement of claim had been filed in the Local Court on 20 June 2017, further payments were made by Dunkirk to Mosman reducing the alleged debt to $61,000.
Based upon these findings of fact, the Magistrate found that while Dunkirk owed Mosman $91,000 as at 28 March 2017, by the fee agreement, Mosman agreed to accept $30,000, provided it was paid in full by 28 April 2017. The Magistrate found that Dunkirk's failure to pay $30,000 by 28 April 2017 was a sufficiently serious breach entitling Mosman to terminate the fee agreement, and at the time of termination, due to Dunkirk's breach of the fee agreement, the amount owed by Dunkirk was $91,000, less amounts paid.
[6]
The Local Court proceedings
By statement of claim filed 20 June 2017, Mosman sought the sum of $76,000 plus interest.
As Mosman argued its case on a basis that was not pleaded, it is necessary that I briefly set out the pleading framework.
[7]
Pleadings in the statement of claim
Mosman pleaded at [7]-[14] and [17]-[19] as follows:
"Agency Agreement dated 28 August 2015
7. On 28 August 2015, the First Defendant entered into a Sales Inspection Reports Open Selling Agency Agreement (Residential) ("Agency Agreement") with First Plaintiff and the Second Plaintiff as the contact real estate agent in relation to the sale of the property known as XXX-XXX Canterbury Road, Hurlstone Park, New South Wales to Mercurius Investments Pty Ltd.
8. The terms in relation to the amount of commission are:
B. COMMISSION
(1) Subject to this Agreement, the Agent shall be entitled to a Commission determined as follows: 1.3% (incl. GST)
(2) Based on the Agent's estimated selling price, the Commission in dollars would be: $70,720.00 if sold at $5,440,000.00 OR $74,880.00 if sold at $5,760,000.00."
9. The First Plaintiff introduced a purchaser, Mercurius Investments Pty Ltd to the First Defendant. The contracts for sale of the property, XXX-XXX Canterbury Road, Hurlstone Park, New South Wales were exchanged between Mercurius Investments Pty Ltd and the First Defendant on 15 September 2015.
10. The sale of XXX Canterbury Road, Hurlstone Park, New South Wales to Mercurius Investments Pty Ltd was not completed as the vendor (First Defendant) decided to withdraw the property from the market.
11. Commission is entitled to the First Plaintiff for a purchaser being effectively introduced by the Agent (First Plaintiff). The selling price was $7,000,000.00 and the 1.3% commission due to the Agent is $91,000.00.
Fee Agreement dated 30 March 2017
12. On 30 March 2017, the First Plaintiff and First Defendant entered into a Fee Agreement ("Fee Agreement"), which varied the commission terms of the Agency Agreement.
13. The Fee Agreement states:
"Mosman & Co Pty Ltd will receive $30,000.00 as commission including GST for the abovementioned sale and will provide tax invoice to Dunkirk Property Developments Pty Ltd.
Mosman & Co Pty Ltd will accept the sum of $30,000.00 as full and final payment and will forgo any claim to unpaid commission under the agency agreement entered into on 21 August 2015.
The amount shall be paid as follows:
Upon parties signing the agreement Dunkirk Property Developments Pty Ltd shall pay the amount of $10,000.00 to Mosman & Co Pty Ltd nominated bank account.
Dunkirk Property Developments Pty Ltd. Shall make a further payment of $20,000.00 by 28/04/2017."
14. The Fee Agreement did not terminate the Agency Agreement.
…
17. The First and Second Defendant repudiated the Fee Agreement dated 30 March 2017.
18. The Second Plaintiff terminated the Fee Agreement by letter dated 23 May 2017.
19. The First and Second Plaintiff are therefore entitled to the full amount of commission in accordance with the Agency Agreement dated 28 August 2015 plus interest."
[8]
The amended defence
By amended defence filed 13 November 2017, Dunkirk admitted paragraphs [7] to [9] of the statement of claim, denied paragraphs [10] and [11], and admitted [12] and [13].
In relation to paragraph [14], it pleaded:
"14. As to paragraph 14 of the Statement of Claim, the First Defendant:
a. says that the effect of the Fee Agreement was to bring any payment obligation that the First Defendant had under the Agency Agreement to an end and to replace that obligation with the obligation at paragraph 13 of the Statement of Claim;
b. otherwise denies paragraph 14 of the Statement of Claim"
Dunkirk pleaded at [17]-[19]:
"17 As to paragraph 17 of the Statement of Claim, the First Defendant:
a. says the Second Defendant was not a party to the Fee Agreement and thereby could not repudiate it;
b. says that on a proper construction of the payment provision in the Fee Agreement, timing was not of the essence;
c. otherwise denies paragraph 17 of the Statement of Claim.
18. As to paragraph 18 of the Statement of Claim, the First Defendant:
a. admits that it received a letter from Brander Smith McKnight Lawyers on 23 May 2017;
b. otherwise denies paragraph 18 of the Statement of Claim
19. The Second Defendant denies paragraph 19 of the Statement of Claim"
[9]
The hearing before the Magistrate
On 2 February 2018, the proceedings were heard by Magistrate Walsh. Ms D Tang of counsel appeared for Mosman. Mr M Sheldon of counsel appeared for Dunkirk. Mosman relied upon the affidavit of Bill Koutrodimos dated 15 November 2017. Dunkirk relied upon the affidavit of its director Mr Hilellis dated 15 November 2017. Neither deponent was cross examined.
On 23 February 2018, the Magistrate handed down his judgment. He entered judgment in favour of Mosman in the sum of $61,000.
The relevant paragraphs of his Honour's decision are found at Court Book pages 226, 227, 228, 229, 230 and 231. They read:
"On 29 March 2017 it is agreed the plaintiff, as agent, and the defendant, as
vendor, entered into a further Sales Inspection Report and Open Selling Agency Agreement. There is no suggestion that it terminated or varied the first agreement. It is agreed that on 30 March 2017, the plaintiff and the defendant entered into a Fees Agreement; it is reproduced as annexure BK15 of exhibit 1. It reads as to its operative words:
"The parties have agreed that in respect of the fees claimed under the agency agreement entered into on 21 August 2015, for the sale of the property known as XX-XX Canterbury Road, Hurlstone Park, to Mercurius Investments Pty Ltd claimed by Mosman & Co Pty Ltd the following will apply:
Mosman & Co Pty Ltd will receive $30,000 as commission including GST for the abovementioned sale and will provide tax invoice to Dunkirk Property Development Pty Ltd. Mosman & Co Pty Ltd will accept the sum of $30,000 as full and final payment and will forego any claim to unpaid commission under the agency agreement entered into on 21 August 2015.
The amount shall be paid as follows:
Upon parties signing this agreement Dunkirk Property Development Pty Ltd shall pay the amount of $10,000 to Mosman & Co Pty Ltd nominated bank account. (already set out earlier)
Dunkirk Property Development Pty Ltd shall make a further payment of $20,000 by 28/04/2017."
The defendant did pay $10,000 as promised on 30 March 2017. The defendant did not pay $20,000 as promised by 28 April 2017.
…
… There was no concluded agreement between the plaintiff and the defendant arising from the conversation. Clearly, the defendant did consider $50,000 should be set aside concerning the plaintiff's claim as that amount was included in the executed deed at Recital (b)(n) thus it is open to find that Mr Helios was not being completely frank with Mr Koutrodimos. Furthermore, Mr Koutrodimos was not agreeing to forego the plaintiff's $91,000 entitlement absolutely. There were negotiations being had about payment and the timing of payment. It would appear that Mr Helios had to speak to his "partners" and convince them before anything could be put in writing, that was the commercial background to the fees coupled with the new sales agreement entered into on 29 March 2017 which held out the prospect of more commission if a new purchaser was found pursuant to the new sales agreement.
…
At para 9 of the defendant's submissions the defendant submits, "Mosman and Mr Koutrodimos alleged that Dunkirk 'repudiated' the fees agreement and they are therefore entitled to the full amount of commission in accordance with the agency agreement plus interest." That assertion is wrong at law. The following principles are of assistance:
(a) The ordinary remedy for breach of contract is an award of damages.
(b) There are two relevant circumstances in which a breach of contract by one party may entitle the other to terminate. The first is where the obligation with which there has been failure to comply has been agreed by the contracting parties to be essential. The second relevant circumstance is where there has been a sufficiently serious breach of a non-essential term.
(c) The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or substantial performance of the promise as the case may be and that this ought to have been apparent to the promisor.
(d) In deciding whether a promise has the status and effect of a condition courts are not too ready to construe a term as a condition and, at least where other considerations are finely balanced, will hold that a term is of such a kind that breach of it does not give rise to an automatic right to rescind This approach is explained by a preference for a construction that will encourage performance rather than avoidance of contractual obligations The interests of justice are promoted by limiting rights to rescind to instances of serious and substantial breaches of contract.
(e) The general principle to be applied when dealing with time stipulation is that a contractual term specifying the time for the performance of a contractual obligation is not to be construed as essential if, therefore, a time stipulation is not to be regarded as essential breach of it will not justify the promise treating himself as having been without more discharge from further performance however the breach remains a breach of contract capable of giving rise to a claim for damages.
(f) Not every beach of a non-essential term will justify termination. The breach must be 'sufficiently serious'. The criteria for establishing whether the breach was sufficiently serious include whether the breach frustrates the purpose of the contract, whether the breach has deprived the promisee of substantially the whole benefit of the contract and whether the breach makes further commercial performance of the contract impossible. The adequacy of damages as a remedy may be a material factor in deciding whether the breach goes to the root of the contract".
The case cited for support in relation to most, and in particular point (a), is Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115, particular at para 46. It is well worth remembering the totality of the quotation at para 46 and not simply the first lines. It reads:
"Leaving to one side remedies of injunction to restrain breaches of contract, or specific performance to enforce contractual obligations, the ordinary remedy for breach of contract is an award of damages Termination of a contract in response to breach, where permitted, may alter substantially the allocation of risk accepted by the parties. The consequences of termination for the parties may be affected by external circumstances such as market fluctuations At the same time, there are cases in which damages are not an adequate remedy, and it would be irrational and unjust to bind one party to an ongoing contractual relationship notwithstanding the other's default"
I need not read the rest as it relates to the particular facts of the case.
A reading of the whole of the paragraph makes it clear that, depending on the circumstances, termination of a contract may well be appropriate. Paragraph 47 of the judgment is cited for authority for point (b) of the submission, it reads, and I will not read the totality but in essence it quotes from the leading judgment of the Chief Justice of the New South Wales Supreme Court, Jordan CJ, in Tramways Advertising Pty Ltd v Luna Park New South Wales Limited. It must be read in conjunction also with para 48. Paragraph 48 is a short paragraph and reads:
"What Jordan CJ said as to substantial performance, and substantial breach, is now to be read in the light of later developments in the law What is of immediate significance is his reference to the question he was addressing as one of construction of the contract It is the common intention of the parties, expressed in the language of their contract, understood in the context of the relationship established by that contract and (in a case such as the present) the commercial purpose it served, that determines whether a term is 'essential', so that any breach will justify termination."
There is no issue that the defendant breached the contract of 30 March 2017 in this present case. There is no doubt that the plaintiff implicitly terminated the contract of 30 March 2017 by the terms of its solicitor's letter of 23 May 2017 which sought the balance of the money owing pursuant to the original agreement of 21 August 2015. The submission at point (c) of the defendant's submission is an accurate statement of the law and is applicable to the facts in this case. The plaintiff was prepared to accept $30,000 provided it was paid in full by 28 April 2017.
All of the surrounding circumstances can be considered in that commercial agreement between these two commercial bodies. The defendant was on notice of those circumstances. One need only look at the terms of the conversation in para 13 of exhibit A and that is why the contract of 30 March 2017 was expressed in terms of "will" provided the defendant "shall" pay by 28 April 2017.
Point (d) of the defendant's submission is also an accurate statement of the law. On the facts of this case the defendant's breach was a serious and substantial breach. Point (e) of the defendant's submission is also an accurate statement of the law. On the facts of this case the time stipulation was essential. In any event, the submission at point (f) of the defendant's submissions, although an accurate statement of the law, also does not, with respect, take into account the facts of this case as I have found them. This breach by the defendant was "sufficiently serious". The breach did frustrate the purpose of the contract being the total payment by 28 April 2017. The breach thus deprived the plaintiff of substantially the whole benefit of the contract being the $20,000 of the promised $30,000 to be paid by 28 April 2017.
The defendant did not comply with the commercial purpose of the contract which was payment by 28 April 2017. I do not accept that the plaintiff affirmed the fees agreement of 30 March 2017 in any way. The transferring of funds by the defendant until 24 July 2017 to the plaintiff's bank account is not acceptance by way of affirmation of an agreement; it was the defendant reducing its debt on a voluntary basis; that debt had crystallised on 28 April 2017, and the agreement of 30 March 2017 had been terminated on 23 May 2017 by the plaintiff due to the defendant's breach of 28 April 2017 and confirmed by the defendant as a fact on 15 March 2017. Accordingly, I am satisfied that the plaintiff has discharged its onus on the balance of probabilities."
[10]
Grounds of appeal
There are four grounds of appeal. They are, firstly, that the Magistrate erred at law in failing to determine the matter that the agency agreement had been varied by a later fees agreement, which was pleaded by Mosman and admitted by Dunkirk; secondly, the Magistrate erred at law by failing to give reasons as to why the result of the fees agreement being terminated was that the agency agreement (which was pleaded as having been varied by the fees agreement) governed the relationship between the parties; thirdly, the Magistrate erred at law in determining that the failure to pay installments owing under the agency agreement as varied by the fees agreement resulted in the fees agreement being repudiated by Dunkirk, and that the repudiation entitled Mosman to terminate the fees agreement; and finally, the Magistrate ought to have found that Dunkirk could only sue for the amount owing under the agency agreement as varied by the fees agreement.
I will first deal with ground 1 and then grounds 3 and 4 together. This will be followed by ground 2.
[11]
Ground 1 - variation of the agency agreement by the later fees agreement
Ground 1 of the appeal concerns whether the Magistrate erred at law by failing to determine the matter on the case, pleaded by Mosman and admitted by Dunkirk, that an agency agreement had been varied by a later fees agreement.
[12]
Dunkirk's submissions
Dunkirk submitted that the parties' mutual pleading was that the fees agreement was varied by the agency agreement. However, the Magistrate stated that "[t]here is no suggestion that [the fees agreement] terminated or varied the [agency agreement]." This was incorrect. As observed by the Magistrate, "the pleading is an admission which binds the defendant". This applies equally to admissions made by Mosman in its pleadings. This also led to the Magistrate avoiding an integral issue on the case as pleaded, being whether it is possible to terminate part of a contract.
According to Dunkirk, the Magistrate erred when he proceeded on the premise that the fees agreement did not vary the agency agreement, as this was contrary to the parties' mutually accepted position established in the pleadings. Dunkirk submitted that this error denied Dunkirk procedural fairness and vitiated the reasoning behind the Magistrate's judgment.
During the hearing, counsel for Dunkirk submitted that Mosman was seeking to distance itself from its Local Court pleadings that there was a variation by the fees agreement through three arguments. They are:
1. The pleading could be ignored because there was no consideration for the variation. This was never pleaded, is contrary to the pleading, and was not subject to any cross examination in order to obtain further information and admissions as to consider. In any event, it is arguable that consideration was present because there was a dispute about how much money should be paid and the parties entered into a second sales agreement;
2. The fees agreement was in substitution of the sales agreement. This is contrary to what was pleaded and is hopeless; and
3. There is a case of according satisfaction. This was never pleaded and was raised mid-trial. Counsel who appealed did not cross examine on this point.
[13]
Mosman's submissions
Mosman submitted that the Magistrate did not find that the fees agreement did not terminate or vary the agency agreement.
It was submitted that Dunkirk failed to accurately substitute terms in the Magistrate's statement: "There is no suggestion that [the fees agreement] terminated or varied the [agency agreement]." The Magistrate actually stated: "…entered into a further Sales Inspection Report and Open Selling Agency Agreement. There is no suggestion that it terminated or varied the first agreement." Accordingly, this was a finding made in respect of the further sales inspection report and open selling agency agreement. It was not a finding made with respect to the fees agreement.
Further, as set out below in respect of the alleged second error, it is apparent the Magistrate found that the fees agreement did vary the agency agreement. The Magistrate also acknowledged during the hearing: "It's pleaded as a variation case and I'll deal with it". Contrary to Dunkirk's submissions, the Magistrate did determine the case as pleaded and admitted between the parties. On that basis, Dunkirk has not identified any relevant error of law.
[14]
Consideration
In his judgment, the Magistrate stated at [4]:
"On 29 March 2017 it is agreed the plaintiff, as agent, and the defendant, as vendor, entered into a further Sales Inspection Report and Open Selling Agency Agreement. There is no suggestion that it terminated or varied the first agreement. It is agreed that on 30 March 2017, the plaintiff and the defendant entered into a Fees Agreement…"
When read in the context of the paragraph, the Magistrate did not state that the fees agreement did not terminate or vary the agency agreement. This would have been contrary to the Dunkirk and Mosman's pleadings. Rather, this statement was referring to the second sales inspection report and open selling agreement dated 29 March 2017. The Magistrate therefore did not fall into error by proceeding on a basis that the fees agreement did not vary the agency agreement.
This ground of appeal fails.
[15]
Grounds 3 and 4 - repudiation of fees agreement
Ground 3 concerns whether the Magistrate erred at law in determining that the failure to pay installments owing under the agency agreement, as varied by the fees agreement, resulted in the fees agreement being repudiated by Dunkirk, and that the repudiation entitled Mosman to terminate the fees agreement.
Ground 4 of the appeal concerns whether the Magistrate ought to have found that Dunkirk could only sue for the amount owing under the agency agreement as varied by the fees agreement dated 30 March 2017.
[16]
Dunkirk's submissions
So far as ground 3 is concerned, counsel for Dunkirk submitted that an agreement cannot be rescinded or terminated by part. There is only one agreement, that being the varied agreement. Irrespective of whether there was a termination or not, Mosman only had a right to receive $30,000 in its claim for debt.
Dunkirk relied upon McDonald v Dennys Lascelles Limited [1933] 48 CLR 457 ("McDonald"), where Dixon J stated at 476 to 477:
"… When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected. …"
Dunkirk submitted that the reason no reasons were given by the Magistrate was because any reasons would have been contrary to what Dixon J set out in McDonald, that termination of a contract does not rescind the contract.
Dunkirk also submitted that the Magistrate ought to have made the orthodox findings that, as pleaded, the fees agreement varied the agency agreement, and pursuant to the varied agency agreement, Mosman was entitled to judgment for the amount of $30,000 plus interest less amounts actually paid. At the date of the hearing the entire $30,000 had been paid and the issue of termination was a red herring.
[17]
Mosman's submissions
Mosman submitted that the error relied on by Dunkirk is that the Magistrate found that a termination of the fees agreement rescinded the fees agreement. However, there is no such finding to that effect in the judgment. Dunkirk has not identified any error of law.
The Magistrate found that at the time of termination, Mosman had an accrued right to $91,000, and not $30,000 under the agency agreement as varied by the fees agreement. The Magistrate also repeatedly found that Mosman did not forgo its entitlement to $91,000 absolutely; it was only prepared to accept $30,000 provided it was paid by 28 April 2017.
Mosman referred to Commissioner of Taxation of the Commonwealth of Australia v Sara Lee Household & Body Car (Australia) Pty Limited (2000) 201 CLR 520 ("Sara Lee"), where Gleeson CJ, Gaudron, McHugh and Hayne JJ stated at [22] and [23]:
"22 When the parties to an existing contract enter into a further contract by which they vary the original contract, then, by hypothesis, they have made two contracts. For one reason or another, it may be material to determine whether the effect of the second contract is to bring an end to the first contract and replace it with the second, or whether the effect is to leave the first contract standing, subject to the alteration. For example, something may turn upon the place, or the time, or the form, of the contract, and it may therefore be necessary to decide (2000) 172 ALR 346 at 351 whether the original contract subsists. In the present case, if the effect of what occurred on 30 August 1991 had been to rescind the agreement of 31 May 1991, then that would go a long way towards providing an answer to the appellant's argument that the assignment which occurred on 30 August was pursuant to the agreement of 31 May, with whatever that entails for the application of Pt IIIA of the Act.
23 In Tallerman and Co Pty Ltd v Nathan's Merchandise (Vic) Pty Ltd Taylor J said:
'It is firmly established by a long line of cases … that the parties to an agreement may vary some of its terms by a subsequent agreement. They may, of course, rescind the earlier agreement altogether, and this may be done either expressly or by implication, but the determining factor must always be the intention of the parties as disclosed by the later agreement.'" (footnotes omitted)
[18]
Consideration
This ground of appeal was framed as a "repudiation". As I understand from the parties' submissions, repudiation is being used in the sense of a repudiatory breach of the agreement.
In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; 241 ALR 88, ("Sanpine") Gleeson CJ, Gummow, Heydon and Crennan JJ stated at [44]:
"[44] The term repudiation is used in different senses. First, it may refer to conduct which evinces an unwillingness or an inability to render substantial performance of the contract. This is sometimes described as conduct of a party which evinces an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with the party's obligations. It may be termed renunciation. The test is whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it. … Secondly, it may refer to any breach of contract which justifies termination by the other party. It will be necessary to return to the matter of classifying such breaches. ... There may be cases where a failure to perform, even if not a breach of an essential term (as to which more will be said), manifests unwillingness or inability to perform in such circumstances that the other party is entitled to conclude that the contract will not be performed substantially according to its requirements. This overlapping between renunciation and failure of performance may appear conceptually untidy, but unwillingness or inability to perform a contract often is manifested most clearly by the conduct of a party when the time for performance arrives. In contractual renunciation, actions may speak louder than words." (footnotes omitted)
In 'Carter on Contract' (LexisNexis Australia, 2015), Professor John Carter stated at [35-010]:
"The expression 'repudiatory breach' has been used to describe any breach which gives rise to a right to terminate the performance of a contract, on the basis that any such breach may be treated by the promisee as a repudiation of the whole contract. However, not every breach of condition is 'repudiatory' in an objective sense, even though a right of discharge will arise for breach of condition. Moreover, a repudiation of obligation - which gives rise to a right to terminate - may not of itself amount to a breach of contract."
The Magistrate did not refer to the Dunkirk's conduct as arepudiation. Rather, his Honour set out the legal principles of a breach at [7]-[8], and concluded that there was a sufficiently serious breach at [9]. For ease of understanding, I will use the word breach and not repudiation. The issue is therefore whether the Magistrate erred in determining that Dunkirk's failure to make the instalments amounted to a sufficiently serious breach to terminate the contract. I will first consider the nature of the time stipulations, breach and termination. I will then consider the effect of the termination in the context of a contract of variation.
[19]
Nature of the time stipulations and breach
The Magistrate referred to a conversation that Lambros Hilellis (a director of Dunkirk) alleged took place with Bill Koutrodimos (a director of Mosman) in or about early March 2017 (Aff, Hilellis 15 November 2017, [13]):
"He said: Lemi what's happening with the buyer of Hurlstone Park.
I said: Nothing is happening your buyer is not going to settle he doesn't have the money.
He said: But I've done my job and I need to be paid my commission.
I said: What commission the property is not going to sell you do not deserve any commission, as the property did not sell.
He said: I'm entitled to commission as per my agency agreement.
The Second Plaintiff then showed me the Agency Agreement.
I said: That's bullshit. We are not paying commission out of our own pockets in circumstances where the buyer can't complete the deal.
He said: I've worked hard on this deal for eighteen months trying to keep it alive. I deserve something.
I said: I hear what you're saying maybe I can get my partners to agree to pay ten thousand dollars.
He said: We've known each other for a long time and I don't want it to get messy with lawyers but I need fifty thousand dollars.
I said: Look you can forget fifty thousand that's just not going to happen you need to be more realistic.
He said: Lemi you know the issues I've had with my ex partner. I'm asking you as a friend to help me out because that whole situation with my ex partner has cost me a fortune, can we agree on forty thousand?
I said: No way forty is too much maybe I could try to get my partners to agree on a number around twenty or thirty thousand.
He said: Look Lemi I've got other buyers interested in your site. They're cashed up ready to go, pay me thirty for commission under this agency agreement, we can sign up a new agency agreement for these other buyers and let's get it done.
I said: Thirty thousand is still a lot but if you're telling me you have other buyers ready to go I think I can convince my partners, so yeah ok let's do it at thirty.
He said: Ok great when can you pay the thirty thousand I need it by the end of the month.
I said: That's just not going to happen I can give you ten by the end of the month and then the rest in a second instalment next month.
He said: I'm not happy about it but if that's the best you can do.
I said: Ok I'll put something in writing, we'll get it signed up and go from there."
The Magistrate stated at page 7:
"…There was no express agreement that the defendant's (Dunkirk's) liability was to be crystallised at $30,000 as at 30 March 2017. That would only occur if the terms of the agreement as to timing were complied with. The word "shall" was used. The payment of $20,000 was not made on 28 April 2017 and indeed was never made. The financial difficulties of the defendant are, with respect, irrelevant."
The Magistrate further stated at page 9 (which I have set out earlier but will repeat for convenience):
"All of the surrounding circumstances can be considered in that commercial agreement between these two commercial bodies. The defendant was on notice of those circumstances. One need only look at the terms of the conversation in para 13 of exhibit A and that is why the contract of 30 March 2017 was expressed in terms of 'will' provided the defendant "shall" pay by 28 April 2017.
…
On the facts of this case the defendant's breach was a serious and substantial breach. … On the facts of this case the time stipulation was essential. …. This breach by the defendant was "sufficiently serious". The breach did frustrate the purpose of the contract being the total payment by 28 April 2017. The breach thus deprived the plaintiff of substantially the whole benefit of the contract being the $20,000 of the promised $30,000 to be paid by 28 April 2017.
The defendant did not comply with the commercial purpose of the contract which was payment by 28 April 2017. I do not accept that the plaintiff affirmed the fees agreement of 30 March 2017 in any way. The transferring of funds by the defendant until 24 July 2017 to the plaintiff's bank account is not acceptance by way of affirmation of an agreement; it was the defendant reducing its debt on a voluntary basis; that debt had crystallised on 28 April 2017, and the agreement of 30 March 2017 had been terminated on 23 May 2017 by the plaintiff due to the defendant's breach of 28 April 2017 and confirmed by the defendant as a fact on 15 March 2017. Accordingly, I am satisfied that the plaintiff has discharged its onus on the balance of probabilities."
The principles concerning time stipulations and breach are well settled in Australian law. They are as follows.
In Carr v J A Berriman Pty Ltd (1953) 89 CLR 327, Fullagar J at 348-349 stated:
"Where a contract contains a promise to do a particular thing on or before a specified day, time may or may not be of the essence of the promise. If time is of the essence, and the promise is not performed on the day, the promisee is entitled to rescind the contract, but he may elect not to exercise this right, and an election will be inferred from any conduct which is consistent only with the continued existence of the contract. If time is not of the essence of the promise, the promisee is not entitled to rescind for non-performance on the day. If either (a) time is not originally of the essence, or (b) time being originally of the essence, the right to rescind for non-performance on the day is lost by election the promisee can, generally speaking, only rescind after he has given a notice requiring performance within a specified reasonable time and after non-compliance with that notice." (footnotes omitted)
In Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632, Jordan CJ (with Davidson J agreeing) at 641-642 set out the test for essentiality as follows:
"The question whether a term in a contract is a condition or a warranty, i.e., an essential or a non-essential promise, depends upon the intention of the parties as appearing in or from the contract. The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor…"
And in Sanpine at [48]:
"[48] What Jordan CJ said as to substantial performance, and substantial breach, is now to be read in the light of later developments in the law. What is of immediate significance is his reference to the question he was addressing as one of construction of the contract. It is the common intention of the parties, expressed in the language of their contract, understood in the context of the relationship established by that contract and (in a case such as the present) the commercial purpose it served, that determines whether a term is "essential", so that any breach will justify termination."
In addition, if a contract is commercial in nature, an assumption can be made that time will be of the essence: see Beneficial Finance Corp Ltd v Multiplex Constructions Pty Ltd (1995) 36 NSWLR 510 per Young J at 533.
In summary, these authorities establish that the determination of whether a term is a condition is a question of construction. Accordingly, the Court must have regard to the common intention of the parties as expressed in the language of the contract, together with the context and purpose of that contract.
The time stipulation in the fees agreement sets out two dates of performance. Specifically, it provided that Dunkirk "shall" pay $10,000 upon signing the agreement. On 28 April 2017, Dunkirk "shall" then pay an additional $20,000. In return, Mosman "will" accept the sum as full and final payment of its commission and forego any claim to unpaid commission. The Magistrate attached significance to the use of "shall" and "will" in concluding that the fees agreement did not crystallise Dunkirk's liability at $30,000 unless the two time stipulations were complied with (at page 7). In other words, the Magistrate viewed this language as creating a condition precedent in which the fees agreement was "subject to" Dunkirk's performance of the time stipulations. However, this conclusion is at odds with his Honour's later consideration of whether the time stipulations were essential terms and whether Mosman had a right to terminate. It is also at odds with the parties' pleadings in which they admitted the fees agreement had the effect of varying the agency agreement.
Of greater importance, however, is the identification of specific dates and the contract's context. The parties identified specific dates for payment. These dates were of clear importance for Mosman as seen in the conversation between Lambros Hilellis and Bill Koutrodimos, where Bill Koutrodimos stated that he would "need it (the commission) by the end of the month". While the evidence indicates he was not happy with the delayed payment dates, he accepted these on the basis that it was the best Dunkirk was able to do. (Aff, Hilellis 15 November 2017, [13]). This establishes that Mosman put Dunkirk on notice that there was a sense of urgency underlying the fees agreement.
In addition, the parties were clearly in a commercial arrangement. The parties were two commercial entities who had a long-standing, pre-existing contractual arrangement in the agency agreement dated 21 August 2015. The purpose of the fees agreement was commercial, as Mosman was foregoing a relatively large sum of money in anticipation of a continued agency relationship and working as the agent to sell the property. This background favours a construction that the parties intended the time stipulations to be of the essence.
It is my view that the time stipulations were essential conditions. Mosman would not have entered the fees agreement had it not been ensured that Dunkirk would strictly perform with the agreed dates of payment. Accordingly, the Magistrate was correct in his conclusion that "the time stipulation was essential" and Dunkirk's failure to make the $20,000 payment by 28 April 2017 was a "serious and substantial breach". His Honour was also correct that on 23 May 2017, Mosman implicitly terminated the contract by the terms of its solicitor's letter. This is because Mosman had not acted in a way inconsistent with this election following Dunkirk's breach on 28 April 2017: see Tropical Traders Ltd v Goonan (1964) 111 CLR 41; [1964] HCA 20 per Kitto J at 55.
It follows that Dunkirk did breach the fees agreement and ground 3 fails. I now turn to consider the effect of that breach and termination in the context of contracts of variation, being the substance of ground 4.
So far as ground 4 is concerned, Dunkirk submitted that the Magistrate ought to have found that the fees agreement varied the agency agreement. Pursuant to the varied agency agreement, Mosman is only entitled to $30,000 plus interest and less amounts actually paid. At the date of the hearing, the entire $30,000 had already been paid. The issue of termination was a red herring. The statement of claim should therefore have been dismissed.
So far as ground 4 is concerned, Mosman submitted that the Magistrate found that the fees agreement varied the agency agreement, but the condition for the acceptance of the lesser amount was that payment was to be made by 28 April 2017. It submitted that on its proper construction, the fees agreement was not a variation of the agency agreement for failure of consideration.
The existence of a contract of variation must be clearly demonstrated by reference to usual rules of formation, including by establishing consideration. In the context of promises to pay lesser sums in satisfaction of a debt, the applicable rule, known as the rule in Pinnel's Case (1602) 5 Co Rep 117a, is that part payment of a debt or the promise thereof does not afford consideration. That proposition has been approved by the House of Lords in Foakes v Beer (1884) 9 App Cas 605, and has not been overruled: see Musemeci v Winadell Pty Ltd (1994) 34 NSWLR 723 per Santow J at 739. While there are authorities which seek to distinguish or not apply the rule in Pinnel's Case, those exceptions apply to contracts where there are outstanding executor promises, not where the outstanding obligation is merely to pay an extant debt.
If the proper construction of the fees agreement is a contract varying the amount due under the agency agreement from $91,000 to $30,000, the fees agreement fails for want of consideration. Accordingly, on that basis, the fees agreement is not enforceable and Mosman is entitled to rely on the agency agreement for its full entitlement of $91,000.
[20]
Effect of breach and termination for contracts of variation
In Sara Lee (which I have set out earlier in this judgment), Gleeson CJ, Gaudron, McHugh and Hayne JJ at [22] stated that parties to an existing contract who enter into a further contract to vary the first contract make two contracts. The effect of the second contract may be to rescind and replace the first contract, or to leave the first contract in force subject to the second contract's alteration. The determining factor is the intention of the parties as disclosed by the later agreement: see Tallerman & Co Pty Ltd v Nathan's Merchandise (Vic) Pty Ltd (1957) 98 CLR 93 per Taylor J at 144. In the Local Court pleadings, Mosman and Dunkirk agreed that the fees agreement varied the agency agreement. (SC, [7] and 12]; Def, [7] and [12]). Accordingly, the agency agreement remained in force subject to the alteration of the fees agreement.
Where the parties have entered into two enforceable contracts, being a principal contract and a varying contract, a breach of the varying contract will not necessarily result in its discharge. These contracts cannot be interpreted in such an isolated way. Rather, the contractual arrangement as a whole must be considered. That is, the agency agreement remains in force subject to the variation of the parties' rights and obligations in the fees agreement. Accordingly, Dunkirk's breach of the fees agreement did not give Mosman a right to terminate the fees agreement alone, but rather a right to terminate the entire contractual arrangement, including the agency agreement.
Even if I am wrong and the Magistrate was correct in his conclusion that Mosman had a right to terminate the fees agreement alone, it does not follow that the original terms of the agency agreement come back into force. The better view is that the fees agreement is not rescinded from the beginning and that the parties' unconditionally accrued rights and obligations are not discharged: see McDonald per Dixon J at 476-477. The parties varied Dunkirk's obligations under the contract to pay $30,000 in two installments. Upon Dunkirk's breach and Mosman's termination, Mosman was only entitled to seek the sum of $30,000.
I note here that this discussion is based upon the fees agreement (the varying contract) being an enforceable contract. Where the elements of the contract formation are not established, or if the varying contract contained a condition precedent which was not satisfied, there would be no variation to the original contract and no change in the parties' accrued rights and obligations. However, Mosman did not argue in its pleadings that the variation was invalid for want of consideration. Nor was this raised before the Magistrate. Therefore, it is not necessary to determine whether consideration for the variation was valid.
For these reasons, ground 4 has been established.
[21]
Ground 2 - failure to give reasons
The second ground of appeal is that the Magistrate erred at law in failing to give reasons as to why the result of the fees agreement being terminated was that the agency agreement, when it had been pleaded as having been varied by the fees agreement, governed the relationship between the parties. At law, only the agency agreement as varied by the fees agreement could be terminated, and this result would have left Mosman with an accrued right to sue for the money owing, if any, under the agency agreement as varied by the fees agreement.
[22]
Dunkirk's submissions
Dunkirk submitted that the error is found in the Magistrate's finding at 19 (CB, 241) where it is stated:
"The breach did frustrate the purpose of the contract being the total payment by 28 April 2017. The breach thus deprived the plaintiff (Mosman) of substantially the whole benefit of the contract being $20,000 of the promised $30,000 to be paid by 28 April 2017… .
…the agreement of 30 March 2017 had been terminated on 23 May 2017 by the plaintiff (Mosman) due to the defendant's (Dunkirk's) breach of 28 April 2017 and confirmed by the defendant (Dunkirk) as a fact on 15 March 2017. Accordingly, I am satisfied that the plaintiff (Mosman) had discharged its onus on the balance of probabilities."
Dunkirk submitted that the error is that no reasons connect the termination of the fees agreement with the right to recover the amount said to be owed under the agency agreement. During the hearing, the Magistrate held there was a termination of the fees agreement because Dunkirk did not pay the second sum of $20,000. This is incorrect for two reasons. Firstly, there is no logical reason supporting how Mosman terminated the fees agreement when, because of the way the case was pleaded, there was only ever one agreement. This was the agency agreement varied by the fees agreement. Secondly, there had to be a reason why it is possible to terminate the fees agreement and not the agency agreement. If the fees agreement was terminated, the loss could only be the money owed under the fees agreement.
[23]
Mosman's submissions
The failure to give adequate reasons may be an error of law for the purposes of s 39(1) of the Local Court Act.
In the present context, Mosman submitted that the Magistrate did give adequate reasons for three reasons.
First, the Magistrate gave the fees agreement the construction which is supported by reasoning and analysis contained in the judgment. This included the following:
1. by reference to the Deed of Mutual Rescission of Contract between Dunkirk and Mercurius and cl 7.2(b) of the agency agreement, his Honour concluded that Dunkirk was obliged to pay Mosman $91,000 as at 28 March 2017;
2. by reference to the evidence and the language in the fees agreement of "will" and "shall" pay by 28 April 2017, his Honour found that Mosman did not forgo its entitlement to $91,000 absolutely when it entered the fees agreement. It only agreed to accept $30,000 provided that this amount was paid by 28 April 2017;
3. his Honour found at 7 that by the fees agreement:
"There was no express agreement that the defendant's liability was to be crystallised at $30,000 as at 30 March 2017. That would only occur if the terms of the agreement as to timing were complied with. The word "shall" was used. The payment of $20,000 was not made on 28 April 2017 and indeed was never made."
1. by reference to the relevant authorities, his Honour concluded the time stipulation in the fees agreement was essential;
2. his Honour considered the commercial context of the fees agreement, referring to the evidence and language of the agreement, and concluded, by reference to the relevant authorities, the failure by Dunkirk to pay $30,000 by 28 April 2017 was a "sufficiently serious" breach that frustrated the purpose of the contract "being the total payment by 28 April 2017"; and
3. his Honour rejected Dunkirk's argument that Mosman had affirmed the fees agreement after the breach on 28 April 2017. His Honour found the transferring of funds after the breach was Dunkirk reducing its debt on a voluntary basis.
Accordingly, there is more than adequate reasoning to support his Honour's conclusion that the failure by Dunkirk to pay $30,000 by 28 April 2017 meant the original amount of $91,000 became due on 28 April 2017.
Second, the Magistrate made a number of detailed findings of fact. His Honour also gave consideration to the evidence before him and made detailed findings in respect of that evidence.
Third, there was a low level of factual complexity. The existence and terms of the agency agreement and fees agreement were not in dispute between the parties. The fees agreement itself was a short document.
Mosman submitted that the purpose of reasons must be balanced against the burden it imposes on the judicial system, particularly in the context of the Local Court. The reasoning of the Magistrate was more than adequate and there is no error of law in that respect. Even if the Court finds that the Magistrate did not provide adequate reasons, Dunkirk has not identified how that would lead to a different result.
[24]
Consideration
It is well established that judicial officers have a duty to give reasons for their decisions. This obligation arises as an ordinary matter of their judicial duty: see Public Service Board of New South Wales v Osmond (1986) 159 CLR 656 ("Osmond"). The failure to give adequate reasons constitutes an error of law: see Soulemeizis v Dudley (Holdings) Pty Limited (1987) 10 NSWLR 247 ("Soulemeizis") per Kirby P at 257-259; Beale v Government Insurance Office of NSW (1997) 48 NSWLR 430 ("Beale") per Meagher JA at 441 and 444.
In Beale, Meagher JA set out the following three elements in relation to the content of the statement of reasons. His Honour stated at 443-444:
"First, a judge should refer to relevant evidence. There is no need to refer to the relevant evidence in detail, especially in circumstances where it is clear that the evidence has been considered. However, where certain evidence is important or critical to the proper determination of the matter and it is not referred to by the trial judge, an appellate court may infer that the trial judge overlooked the evidence or failed to give consideration to it: North Sydney Council v Ligon 302 Pty Ltd (1995) 87 LGERA 435. Where conflicting evidence of a significant nature is given, the existence of both sets of evidence should be referred to.
Secondly, a judge should set out any material findings of fact and any conclusions or ultimate findings of fact reached. The obvious extension of the principle in North Sydney Council is that, where findings of fact are not referred to, an appellate court may infer that the trial judge considered that finding to be immaterial. Where one set of evidence is accepted over a conflicting set of significant evidence, the trial judge should set out his findings as to how he comes to accept the one over the other. But that is not to say that a judge must make explicit findings on each disputed piece of evidence, especially if the inference as to what is found is appropriately clear: Selvanayagam v University of the West Indies [1983] 1 WLR 585; [1983] 1 All ER 824. Further, it may not be necessary to make findings on every argument or destroy every submission, particularly where the arguments advanced are numerous and of varying significance: Rajski v Bainton (Court of Appeal, 6 September 1991, unreported).
Thirdly, a judge should provide reasons for making the relevant findings of fact (and conclusions) and reasons in applying the law to the facts found. Those reasons or the process of reasoning should be understandable and preferably logical as well."
Further, in Madden's Stable Bedding Pty Ltd v Reid [2014] NSWSC 554, Button J stated at [18] and [32]:
"[18] The scope of the duty to provide adequate reasons is incapable of precise demarcation, and will depend on the circumstances of the individual case: Housing Commissioner of NSW v Tatmar Pastoral Co Pty Ltd at 381; Mifsud v Campbell (1991) 21 NSWLR 725 at 728; Beale v Government Insurance Office of NSW at 442. For instance, it is not necessary for a judge to make explicit his or her findings in respect of every disputed piece of evidence, particularly where there is no right of appeal against findings of fact: Soulemeizis v Dudley (Holdings) Pty at 271, 281.
…
[32] That is particularly so given the low level of legal and factual complexity involved in this case, and the fact that it was heard in the Local Court. The purpose of providing reasons for a decision must be weighed against the burden that it imposes on the judicial system: Soulemeizis v Dudley (Holdings) Pty Ltd at 259; Beale v Government Insurance Office of NSW at 444. Accordingly, the context in which a decision is made will shape what constitutes adequate reasons: see for example Pollard v RRR Corporation Pty Ltd [2009] NSWSC 110 at [56]. The volume of matters, pace of proceedings, and level of seriousness of matters heard in the Local Court must be kept firmly in mind in determining whether a ground such as this has been established."
The Magistrate made reference to the material evidence, specifically the agency agreement, the fees agreement and various communications between Dunkirk and Mosman. His Honour was not required to refer to all the relevant evidence in detail. The Magistrate also set out all the relevant findings of fact, which were largely not in dispute between the parties. This included the Magistrate's findings that Dunkirk's obligation to pay the $91,000 crystallised on 28 March 2017, that there was no express agreement that Dunkirk's liability was to crystallise at $30,000 as at 30 March 2017, and the commercial circumstances of the contract. The Magistrate also clearly set out his reasoning when applying the facts to the law. His Honour considered at [9] that the time stipulation was "essential" and that Dunkirk's failure to comply amounted to a "sufficiently serious" breach. This entitled Mosman to elect to terminate the contract.
For completeness, I note that the Magistrate was dealing with a matter where the facts were not in dispute. The parties were in agreement over the existence and terms of the agency agreement and fees agreement. The fees agreement itself was a short document. The parties had also agreed that the fees agreement was a variation of the agency agreement. It is my view that the Magistrate's process of reasoning was adequate.
For these reasons, this ground of appeal fails.
As one of the appeal grounds has been upheld, it is now necessary that I consider Mosman's notice of contention filed 12 June 2018.
[25]
The notice of contention
On 12 June 2018, Mosman filed a notice of contention. Mosman contends that the decision of the court below should be affirmed on grounds other than those relied upon by the court below, but does not seek a discharge or variation of any part of the decision.
For convenience, the notice of contention raises two grounds. First, whether the Magistrate erred in law by not determining that the fees agreement, on its proper construction, was an agreement of accord and conditional satisfaction, such that Dunkirk's failure to perform entitled Mosman to sue for its full entitlement under the agency agreement; and secondly, in the alternative, the Magistrate erred in law by not determining that the fees agreement, on its proper construction, varied the agency agreement such that the Dunkirk's performance was a condition precedent to the performance of Mosman compromising the amount under the fees agreement.
[26]
Mosman's submissions
Mosman submitted that it ran its case before the Magistrate on the basis of the fees agreement being an agreement of accord and satisfaction. However, Mosman did not plead in its statement of claim that the fees agreement was an agreement of accord and conditional satisfaction. Nevertheless, Mosman seeks that the case be decided on this construction.
The general rule is that parties will be bound to their pleadings. The underlying rationale is to give the defendant an understanding of the claim with a proper opportunity to meet the case against it. Cases may be decided on a basis different from that disclosed by the pleadings where the parties have deliberately chosen some different basis, including where a party acquiesces to the other course adopted by a party: see Cox Purtell Staffing Services Pty Ltd v Our Energy Group Pty Ltd [2017] NSWSC 1122 per Walton J at [58]-[62].
Mosman submitted that both at trial and now on appeal, the case proceeding on the basis of accord and conditional satisfaction does not alter the underlying basis pleaded upon which the parties' rights are to be determined, and there is no prejudice to Dunkirk. This is for five reasons:
1. The case proceeding on the basis of accord and satisfaction does not change the underlying basis upon which the parties' rights are to be determined. The matter to be determined remains what is the proper construction of the fees agreement and what are the parties' rights arising under it;
2. Dunkirk understood the case to be a case of construction of the fees agreement. Accordingly, whatever material it considered relevant to the proper construction of the fees agreement could have been put before the court, regardless of whether Dunkirk was on notice of the construction contended by Mosman;
3. Dunkirk admitted that its argument of essential terms of the fees agreement was the same whether it was a case of accord and conditional satisfaction or variation;
4. Dunkirk was on notice of the case of accord and conditional satisfaction by at least 29 January 2018, when Mosman filed its statement of facts and issues; and
5. Dunkirk was on notice from the Statement of Claim and Mosman's summary of the case filed 13 December 2017 that Mosman considered the fees agreement was a separate agreement from the agency agreement and that it was suing on its rights under the agency agreement. That position is consistent with the construction of the fees agreement as an agreement of accord and conditional satisfaction, so the construction of an accord and conditional satisfaction does not raise a new question in this respect.
Despite the case admitted in the pleadings, the court must determine the matter according to law: see Damberg v Damberg (2001) 52 NSWLR 492 per Heydon AJA at [149] (with Spigelman CJ and Sheller JA agreeing). Mosman submitted that, according to law, the proper construction of the fees agreement is an agreement of accord and conditional satisfaction.
Mosman submitted that the essence of accord and satisfaction is where a party accepts something in place of a cause of action. In Osborn v McDermott [1998] 3 VR 1 ("Osborn"), Phillips JA identified three categories at [10]:
"First, there is the mere accord executory which, on the authorities, does not constitute a contract and which is altogether unenforceable, giving rise to no new rights and obligations pending performance and under which, when there is performance (but only when there is performance), the plaintiff's existing cause of action is discharged. Secondly, at the other end of the scale is the accord and satisfaction, under which there is an immediate and enforceable agreement once the compromise is agreed upon, the parties agreeing that the plaintiff takes in satisfaction of his existing claim against the defendant the new promise by the defendant in substitution for any existing obligation. Somewhere between the two, there is the accord and conditional satisfaction, which exists where the compromise amounts to an existing and enforceable agreement between the parties for performance according to its tenor but which does not operate to discharge any existing cause of action unless and until there has been performance."
The proper construction of such an agreement is to be in accordance with the accepted principles of construction. This requires the court to assess the intention of the parties objectively, having regard to the language used, the surrounding circumstances known to the parties and the objects the agreement is intended to secure: see Jingalong Pty Limited v Todd [2015] NSWCA 7 per Sackville AJA at [69] (Meagher and Leeming JJA agreeing).
Mosman submitted that the fees agreement was an agreement by Mosman to accept $30,000 in place of its cause of action for unpaid commission under the agency agreement. Mosman had an entitlement to $91,000 under the agency agreement as at 28 March 2017. That entitlement accrued prior to, and remained unpaid at the time of, entry into the fees agreement. That the cause of action was the subject of the fees agreement is supported by the use of the word "claim". This arises in the following wording in the fee agreement: "The parties have agreed that in respect to the fees claimed under the agency agreement…the following will apply", and "Mosman & Co Pty Ltd will accept the sum of $30,000 as full and final payment and will forgo any claim to unpaid commission under the agency agreement entered into on 21 August 2015."
More specifically, Mosman submitted that the proper construction of the fees agreement is that it extinguished the original cause of action under the agency agreement only upon performance of the agreement, that is, payment of $30,000 by 28 April 2017. Mosman did not extinguish its right to sue under the agency agreement immediately upon entry into the fees agreement.
Mosman submitted that the Magistrate was correct in the application of the ordinary principles of construction as to the terms of the fees agreement. The relevant findings of the Magistrate were:
1. The commercial purpose of the contract was the total payment of $30,000 by 28 April 2017;
2. The failure to pay $30,000 by 28 April 2017 deprived Mosman of substantially the whole benefit of the contract; and
3. Time was essential.
Those findings support the construction that the fees agreement only extinguished the original cause of action upon performance of the agreement. Understood in this way, the fees agreement does not suffer from the same issue of consideration that it would have had it been found to be a variation agreement. That is, there is no difficulty with valid consideration. As an agreement of accord and conditional satisfaction, there is no agreement to accept a lesser sum in satisfaction of a larger debt. Instead, what is given as consideration by Mosman to Dunkirk is the forbearance to sue on the agency agreement. In return Mosman would receive as consideration payment of $30,000 by 28 April 2017.
Finally, where there has been no performance, Mosman is entitled to treat the accord as at an end and proceed on the original cause of action. Accordingly, Mosman was entitled to and did proceed on its original action under the agency agreement for its $91,000 commission. Mosman's notice of contention should be upheld and the judgment affirmed on that basis.
[27]
Dunkirk's submissions
During the hearing, Dunkirk submitted that the argument put forward on the construction point is irrelevant. This is because what has been argued in the notice of motion is that the fees agreement was in accord and satisfaction, which was not pleaded. It was not put to Dunkirk and there was no analysis of the factual matrix to determine whether that was the case, because Dunkirk did not go to court to meet that case.
[28]
Consideration
As best as I can understand the grounds of the notice of contention, Mosman seeks to establish that the fees agreement was an agreement of accord and conditional satisfaction. This is distinct from an agreement of accord and satisfaction.
In El-Mir v Risk [2005] NSWCA 215, McColl JA (with Handley and Ipp JJA agreeing) stated the general principles concerning agreements of accord and satisfaction at [48]-[52]:
"[48] The "essence of accord and satisfaction 'is the acceptance by the plaintiff of something in place of his cause of action', … the accord is the agreement or consent to accept the satisfaction … upon provision of the satisfaction, there is a discharge which extinguishes the cause of action": Federal Commissioner of Taxation v Orica Ltd [1998] HCA 33 ; (1998) 194 CLR 500 per Gummow J at [116] citing Dixon J in McDermott v Black at 183-185; see also British Russian Gazette & Trade Outlook Ltd v Associated Newspapers Ltd [1933] 2 KB 616 at 643 per Scrutton LJ In Thompson v Australian Capital Television Pty Ltd and Other [1996] HCA 38; (1996) 186 CLR 574 at 610, Gummow J emphasised that accord and satisfaction "requires acceptance of something in place of the full remedy to which the recipient is entitled". (emphasis added)
[49] Where there is an agreement to accept a promise in satisfaction of the cause of action, "the original cause of action is discharged from the date when the promise is made": McDermott v Black per Starke J (at 176); Dixon J (at 183-185); see also British Russian Gazette & Trade Outlook Ltd v Associated Newspapers Ltd (at 644) per Scrutton LJ.
[50] The consequences of the discharge of the original cause of action by accord and satisfaction were explained by Phillips JA (with whom Winneke P and Charles JA agreed) in Osborn & Bernotti t/as G04 Productions v McDermott t/as RA McDermott & Co & Karmine Pty Ltd [1998] 3 VR 1 at 8, in a passage referred to with apparent approval by Gummow and Hayne JJ in Baxter v Obacelo Pty Ltd [2001] HCA 66; (2001) 205 CLR 635 at [56]. Phillips JA said:
"Where there is an accord and satisfaction, the agreement for compromise may be enforced, and indeed only that agreement may be enforced, because ex hypothesi the previous cause of action has gone; it has been 'satisfied' by the making of the new agreement constituted by abandonment of the earlier cause of action in return for the promise of other benefit." (emphasis added)
[51] In other words, the role of an accord is to replace the former contract with a new one (eodem modo quo oritur, eodem modo dissolvitur): Professor Brian Coote, Common Forms, Consideration and Contract Doctrine, (1999) 14 Journal of Contract Law 116 at 123. Accord and satisfaction provides the means whereby a cause of action which a plaintiff has can be rendered unenforceable: Illawong Village Pty Ltd v State Bank of New South Wales [2004] NSWSC 18, at [262]-[263] per Campbell J.
[52] If the promisor fails to perform the promise, the promisee's only remedy is to sue for breach of the promise. There cannot be a return to the original obligation or claim: see Anson's Law of Contract, 27th Ed at 492; see also Koutsourais & Anor v Metledge & Associates [2004] NSWCA 313 at [49] - [51] per Bryson JA (Hodgson JA, with whom Beazley JA concurred, agreed (at [7]) with Bryson JA's consideration of the issue of accord and satisfaction, although disagreeing with his Honour's ultimate conclusion)."
In Osborn, Phillips JA set out the principles concerning agreements of accord and conditional satisfaction at 9-10:
"…it was the plaintiffs' contention that the terms of Annexure "A" demonstrated mere accord executory (so that there could be no enforcement, wanting performance), whereas it was the contention of the defendant that those terms demonstrated accord and satisfaction. But while the parties were thus disposed at first to consider only these two alternatives, there is a third possibility, as demonstrated by the judgment of Fullagar J in Scott v English [1947] VLR 445.
In Scott, after rehearsing a great number of the earlier cases preceding McDermott v Black, Fullagar J at 451-2, first drew the distinction between accord and satisfaction and mere accord executory in classic terms, drawing for the purpose on the words of Parke B in Evans v Powis (1847) 1 Exch 601at 607-8; 154 ER 255 at 258, to the effect that where there was accord and satisfaction:
"…the plaintiff agreed to accept the agreement itself, not the performance of it, as a satisfaction for his debt, so that if it was not performed, his only remedy would be by action for the breach of it, and not a right to recur to the original debt."
A little further on, Fullagar J at 452, added this, quoting from the judgment of Dixon J. in McDermott at 185:
"If the agreement is to accept the promise in satisfaction, the discharge of the liability is immediate; if the performance, then there is no discharge unless and until the promise is performed."
Commonly that will be the contrast, so that the "satisfaction" will be immediate if the compromise is in return for a promise of something to be done.
But that need not always be so, as Fullagar J went on to point out; for there is no reason why, if they wish, parties may not make an immediately binding agreement for compromise but defer the satisfaction (or discharge) of existing obligations until performance, thereby rendering discharge conditional. As Fullagar J put it in Scott at 453:
"The essence of the matter may be said to be that a mere "accord" is not a contract at all. But, if we find in any particular case that there is a contract - a promise accepted in "satisfaction" against a promise - our problem is not necessarily at an end. We have still, I think, in some cases to construe the contract to see whether its effect is to discharge the original cause of action absolutely, so that the plaintiff can never thereafter sue on it but can only sue on the new contract, or whether it effects only a conditional discharge, merely suspending the original cause of action, so that, if it is not performed by the defendant according to its tenor, the plaintiff may still maintain that original cause of action."
Thus, his Honour contemplated a case in which the accord amounted to an immediately enforceable agreement (which suggests that there was accord and satisfaction), but that the "satisfaction" (the discharge of existing obligations) was itself only conditional, suspending the original cause of action, but not extinguishing it, unless and until performance by the defendant according to the tenor of the agreement."
The reasoning of Fullagar J in Scott and Phillips JA in Osborn was considered favourably and applied in this Court in Hunters Hill Council v Hakim [2016] NSWSC 1598 ("Hakim") by Davies J at [27]-[32].
On the basis of these authorities, the proper question for determination is whether the agreement upon its proper construction was one to accept the promise, or the performance, in satisfaction. If the fees agreement was to accept the promise in satisfaction, Dunkirk is immediately discharged from its liability under the agency agreement and Mosman can only sue for the breach of promise under the fees agreement. Alternatively, if the fees agreement was to accept the performance in satisfaction, Dunkirk's discharge of liability is conditional. The original cause of action is merely suspended and there will be no release of liability until Dunkirk performed its payment obligations in accordance with the time stipulations: see Hakim per Davies J at [28].
While the fees agreement is a very short document, its language favours a construction that it was an agreement to accept the promise in satisfaction for the liability. For convenience, the terms are as follows:
1. The parties have agreed in respect of the fees claimed under the agency agreement that the terms which followed will apply.
2. Mosman will receive $30,000 as commission and will accept the sum of $30,000 as full and final payment and will forego any claim to unpaid commission under the agency agreement.
3. Upon singing the agreement, Dunkirk shall pay the amount of $10,000.
4. Dunkirk shall make a further payment of $20,000 by 28 April 2017. (My emphasis)
There is nothing contained in the terms of the fees agreement which would suggest that the parties intended the existence of the agreement and its terms to be conditional upon the time stipulations. To the contrary, the agreement states that the parties have "agreed" that the following terms "will" apply. The parties' use of the imperative words "will" and "shall" suggests that the fees agreement immediately affected their existing rights and obligations. This language also indicates that the discharge of Dunkirk's liability under the agency agreement was not conditional. Mosman agreed to accept the $30,000 as "full and final payment" and to "forego any claim to unpaid commission under the agency agreement". The effect of this was to discharge the original cause of action completely: see Scott per Fullagar J at 453. Nor can it be said that the mere importance of the time stipulations to Mosman automatically results in these terms being construed as conditions precedent. In my view, the proper construction of the fees agreement is that it was an agreement to accept the promise in satisfaction. Accordingly, the fees agreement was one of accord and satisfaction and not accord and conditional satisfaction.
As the fees agreement is an agreement of accord and satisfaction, Mosman is not entitled to claim the original amount stated in the agency agreement. Mosman's only remedy is to sue for the breach of the promise contained in the fees agreement: see El-Mir v Risk per McColl JA at [52]. For these reasons, the grounds raised in the notice of contention fail. The appeal is upheld.
[29]
Costs
Costs are discretionary. Costs usually follow the event. The defendant is to pay the plaintiff's costs on an ordinary basis.
[30]
The Court orders that:
(1) The appeal is upheld.
(2) The Local Court judgment that Dunkirk Property Development Pty Ltd pay $91,000 to Mosman & Co Pty Ltd is to be set aside.
(3) The notice of contention filed 12 June 2018 is dismissed.
[31]
Judgment:
(4) In lieu, I enter judgment that Dunkirk Property Development Pty Ltd is to pay Mosman & Co Pty Ltd the sum of $30,000 owed under the fees agreement.
[32]
The Court notes that:
(5) At the time of these proceedings, Dunkirk Property Development Pty Ltd has already paid Mosman & Co Pty Ltd the sum of $30,000 so ordered.
[33]
The Court further orders that:
(6) The defendant is to pay the plaintiff's costs on an ordinary basis.
[34]
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Decision last updated: 15 February 2019